Larry Berman CFA, CMT, CTA , Chief Investment Officer, Partner

ETF Capital Management Inc.

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Uranium. He thinks nuclear going forward over 20-30 years is going to be the cleanest source of energy in the world for mass scale. He is bullish on Uranium, but since the Japan disaster, the world vision has changed on this. Regardless he is a big believer. We are in a bottoming phase and it makes sense to have some. He likes URA-N as a diversified way to play it.

Markets. The leader of the people’s bank of China is suggesting more easing is on the way. Real Estate has finally started to turn negative. Markets that go up because of stimulus do not inspire confidence. He would not put any new money there. Surveys show C-suite execs are gloomy about the economy. Retail sales in the US have been weak for the last couple of months. Canada is an energy market and so only outperforms the world when energy is strong. Corporate Canada is looking at it and saying that perhaps this is not a great thing for us. Our job picture is not good. He thinks business sentiment being negative it is not priced into the market. Amazon is rolling out their home services business. They are wildly bullish about bring down the costs, but these products and services Amazon is bringing are deflationary. ETF costs are another example – they are deflationary also.

Educational Segment. Canadian vs. the world market since Mar 9/09. Canadians need to be global investors. The only incentive is tax considerations. In non-taxable accounts you must be global. Consumer discretionary has lead since ’09. Less than 10% of the top three sectors make up the Canadian index. Canada has a lot in its index that underperforms the world.

The world yields about 2.3%. There are dividend focused world ETFs. He is not sure focusing on dividends only makes sense. Dividends on average tend to underperform. VXC-T is everything in the world except for Canada. Foreign dividends don’t get preferential tax treatment, but that tax break is insignificant compared to what you would give up if you only invest in Canada.

A basket of other ETFs. If interest rates skyrocket, nothing will protect you. But he thinks interest rates will stay low for years and years to come. You get a return on capital from this one in the 6% payout.

Markets. If you go back over the last year it is about the worst in 30 years for Canada for jobs. It is because of the oil sector. Canada has said they will not cut rates again but if jobs keep getting cut maybe there will be another one later this year. The Saudis are saying they will ride out the low oil prices. It is mostly the low production rigs that are getting cut in North America. It could be that oil stays weak longer than most people think. The debt levels in Greece are unsustainable so they have to leave at some point, but their pride might sustain this thing for several years. If Greece leaves the EU in a bad way it could wreak havoc. But if they do it in a sensible way it will be okay. It will just be a negative for financial markets.

Diversification. VXC-T is an ETF where you get the entire world in one ETF, without Canada. There are diversified companies but you still get company-specific risk. Vanguard Total world (VT-N) is a great one to diversify throughout the world. ETFs make asset allocation so eloquent.

Fixed Income. It is going to be hard to generate a real return (after inflation) in this market. Laddered bond portfolios in the corporate bonds have credit risk. He likes target date ETFs. There is not a lot of interest rate risk. BMO has a couple and Royal has a couple.

Educational Segment. Qualitative and Quantitative assessment of current markets. Since 2012 we have had higher highs and higher lows. In October of last year we had the first lower low but then followed by a higher high. Will we see a higher high this time around? We can look at advance decline lines. Since 2012 the NASDAQ didn’t go lower than the NYSE until last fall. The NASDAQ is dropping and the NYSE is leveling. Small caps are now leading the rally and that is a good sign. They are not as dollar sensitive in earnings reports. Seasonals: It is year 3 of the presidential cycle, which is the most powerful. From March to June is the most powerful seasonal time for this year of the cycle.

When you trade illiquid, wide-spread-trade ETFs, don’t go market. Use a limit order. ZUQ-T is a smart beta ETF. A qualitative approach to the top 1000 US large caps, filtered for all the normal metrics. It is the top 100 of those names.

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